iVendi’s chief executive James Tew talked to Automotive Management in regards to the motor finance opportunities for dealers and why rebuilding trust through transparency, earlier commission disclosure and safer ways to fund value-added products could mean the difference between profitable growth and the following compliance headache.
In a post-redress world where consumer confidence is low, what does maximising motor finance opportunities actually mean for dealers in 2026?
Primary is transparency. If people lack trust, then the one method to regain it’s by being transparent. That’s actually modified since commission disclosure, which got here into force in 2024. But there remains to be rather a lot to do around transparency. Is the product right? Is there a preference to work with one lender and permit that lender to have first dibs on the shopper? We see trust might be greatly enhanced through the transparency of showing a panel of lenders, and having the ability to display different products from different lenders, in order that there may be alternative for the buyer.
We’ve been a giant advocate of that for a few years. We haven’t modified our approach. It’s just now we’re perhaps shouting more loudly about it, since it’s clearly what the Financial Conduct Authority (FCA) desires to see.
That’s not necessarily a difficulty on brand latest cars where there may be an interest-free offer from an OEM. Nothing goes to beat that. But actually across used cars, there may be little to no excuse for not offering alternative.
After the Supreme Court decision and the scrutiny on “unsophisticated” consumers, what should dealers treat because the minimum standard of finance and commission explanation at the purpose of sale?
It’s ensuring that any information is obvious, concise and to the purpose, in order that the buyer fully understands before that understanding is checked with the buyer. The rulebook also talks about disclosure in a timely manner. That, in itself, has been a challenge, since it’s been about getting that across in a timely manner prior to any customer detriment, which may very well be using a credit application search or a tough search. It’s about ensuring that commission is disclosed as early as possible within the journey, actually not whilst the shopper is within the technique of signing the finance agreement.
All it will come back to bite lenders and retailers if that’s their process. We’re all pretty clear now what the FCA requires, so it’s right down to lenders and retailers actioning those requirements. Lenders can’t carry on blaming systems. They’ve had loads of time to alter the systems and to alter their approach.
Are you seeing that being applied out available in the market?
The challenger lenders coming to the market are very tech savvy, very agile, and are ensuring this happens. But you could have got loads of lenders where their process remains to be not up to the mark, and who may very well be serving information earlier in the shopper journey. There are still areas for improvement. Some lenders haven’t got the potential of getting commission disclosure out early enough in the method, which impacts what the retailer can do. A retailer would favor consistency within the journey, because they could not know which lender goes to jot down the deal.
You’ve previously said funders are nervous about value-added products being rolled into finance.
Unfortunately, as we come out of 1 problem, motor finance redress, I even have a powerful belief that we’ll go straight into the funding of value-added products (VAPs). They’re a necessity for many retailers to sell as margins and commissions get squeezed, and so they provide a beneficial source of dealer revenue. Nevertheless, it’s the funding of the VAP that creates an issue, and this may be where the regulator’s primary concern is.
Say you could have an prolonged 12-month warranty, but you’re funding that on a five-year hire purchase agreement. There’s 4 years where there isn’t a product value, but you might be still paying interest for that product over five years. And that’s where the first concern is. Firms might want to prove fair value and in addition be certain that there isn’t a foreseeable harm to the buyer. I don’t think they’re doing that. The query is: what steps have been made by the retailer to be certain that the shopper is well aware of this?
When you took an example of an £800 warranty at a typical 11.9% APR, interest charges can be within the magnitude of, say, £265 on that. But they’ll only have a 12-month profit and an ongoing debt for the remaining 48 months. It’s going to fail a good value test, unless there’s rigorous disclosures and vulnerability checks as well. The view could be that it made the product reasonably priced over the five years, but I do worry that that is the following big thing about to occur, and claims management firms (CMCs) will soon pick up on this. Then we have now to begin all yet again. These CMCs have hundreds of thousands and hundreds of thousands of shoppers which were subscribing to them, saying they’ve been missold motor finance. So it’s going to be very easy for them to return and easily ask them in the event that they had a value-added product funded.
Are you seeing early signs that indicate VAPs are heading for regulatory intervention, and what should dealers change now to remain ahead of it?
One major lender has stopped the funding of VAPs, in order that they obviously took a view that this is simply too dangerous. Other lenders are monitoring them closely, and lots of the latest lenders coming to market aren’t funding VAPs in any respect.
There are lenders that are breaking out the VAP products right into a separate schedule in order that the shopper can see how much interest might be applied. Funding them individually is the reply, nonetheless, either through enabling the shopper to fund them directly themselves (so the danger is only with the shopper) or using an option of a Buy Now, Pay Later facility. Many available on the market will only offer a 10-month scheme, but iVendi is now offering as much as 24 months with a Buy Now, Pay Later facility, which might either be interest-bearing or interest-free. That is going to be certain that the funding term doesn’t exceed the lifetime of the product. One of the best method to do it’s to completely segregate and have two separate agreements. That either may very well be with that very same lender, or it may very well be with a third-party provider in a separate transaction.
Alternatively, get some pretty strong disclosures highlighting the prices, the disadvantages, and the issue with funding it over an extended period.
What does “good” seem like for an alternate VAP funding model that keeps affordability, avoids LTV problems, and still passes a compliance sniff test?
We are able to’t change history, and unfortunately there’s been tons of of hundreds of thousands of kilos value of VAPs funded on finance agreements. But what we are able to do is help with future funding, and we are able to highlight to a retailer where there may be a difficulty with the funding of VAPs through our platform. We’ve got some further enhancements that might be rolled out in the approaching weeks, but additionally the flexibility to fund them individually through third-party payment providers.
The opposite big area with funding VAPs is that, traditionally, sale penetration is way greater where finance is sold, opening up latest income channels. Money customers represent greater than 50% of all customers and represent a major opportunity. Interest-free products could hugely increase each the basket size and the penetration. Yes, dealerships pays a subsidy in doing that, but their overall profitability will grow doubtless.
How does a dealership know that they’re doing the suitable thing?
They’ll speak to us, which is quick and free. They must also be referring this issue to their compliance teams. In the event that they’re in-house, they need to all pay attention to it. In the event that they’re using external compliance teams, or use consumer credit lawyer specialists, they need to get their feedback.
This Article First Appeared At www.am-online.com
